Articles

(February 2005) One of the biggest stories in Governor Ed Rendell’s proposed state budget for the 2005-06 fiscal year is Medical Assistance, Pennsylvania’s version of Medicaid. It’s the 600-pound gorilla in the state budget proposal.

In Pennsylvania, as in other states, the cost of the state’s share of health care coverage for low-income residents has been rising much faster than revenue receipts and consuming ever-larger pieces of the state budget. Medical Assistance now consumes 19% of Pennsylvania’s General Fund Budget - up from just over 16% five years ago.

In spite of proposed cost savings of $384 million dollars, the Medical Assistance program will increase spending by $285 million in the coming year. This is in contrast to cuts elsewhere in the state budget: all state departments - except Public Welfare and Education and funding for higher education institutions - could face nearly $400 million in overall cuts next year.

Who benefits from Medical Assistance?

The Medical Assistance program insures access to comprehensive health care services for low-income individuals and families or those with medical expenses exceeding available income. The following table illustrates who receives Medical Assistance and how the funds are spent.

The table clearly shows that children and families are the largest group of program participants. However, when it comes to money, the elderly and disabled consume a much larger share per person.

Why are costs spiraling upward?

State funding for Medical Assistance grew by over a $1 billion - or by a third - over the last five years. There are three reasons.

• First, more people are using the program. The budget projects over 100,000 new eligible individuals next year for a total of over 1.8 million - significantly higher than 1.4 million five years ago. These increases are especially significant compared to almost static population growth during the same time period. The reasons for the increase? A growing elderly population and a growing number of uninsured.
• Second, health care costs are rising for government, just like everybody else. The cost of providing service is rising much faster than the rate of inflation due to higher levels of service utilization, access to advanced and expensive technology, and new drug treatments. Pharmacy costs and nursing home care are the leading cost drivers.
• Third, federal funding is declining. The rate of reimbursement to Pennsylvania is declining, and a two-year, one-time infusion of Medicaid funding to help states balance their budgets ended in 2004.

What is the Governor proposing to deal with the problem?

The Governor has proposed this five-fold strategy to deal with the rapidly escalating costs of medical assistance.

• Increase revenues. The program will require consumers to share in the cost of services through a series of co-payments and premium payments;
• Limit services. Specific services such as the number of prescriptions filled, visits to doctors, outpatient clinics and hospitals, ambulance rides, and medical equipment would be capped;
• Revise payments to providers. State reimbursement of certain providers of health care services to medical assistance recipients would be increased 2%;
• Lower prescription costs. The Department of Public Welfare would implement a preferred drug list;
• Increase community-based care. The Community Choice program would be expanded to increase the ability to serve older patients at home or a community-based setting rather than in a facility.

The Governor made a conscious decision not to reduce the number of people eligible for benefits - at least for now. Other states have reduced or are considering reducing the number of people eligible in order to save money.

What does the future look like?

As bad as matters appear in the coming year, the outlook for Medical Assistance in 2006-07 is expected to be even worse. The Department of Public Welfare projects another 78,000 to join the rolls. Health care costs surely will continue to rise. Finally, the President’s budget proposes new federal cuts to Medicaid. If accepted by Congress, the pressure on all states, including Pennsylvania, will increase even more.

The bottom line? The Governor and legislature are faced with a difficult situation that’s not going away any time soon. The 600-pound Gorilla only promises to keep growing.